A Public Plan in Health Reform?

The Alliance for Health ReformApril 27th 2009

Stuart ButlerThe Heritage Foundation

What problem is a public plan supposed to fix?

Supporters want to:

• Assure a “safe harbor” for certain populations

• Provide a benchmark plan to assure public confidence in a competitive model

• Broaden choice

• Have a tough competitor to goose private plans

The Bad Cop Version

(Davis, Holahan, Hacker)

• Modeled on Medicare

• Payment rates “same or perhaps somewhat higher than Medicare” (Holahan)

• Use purchasing power of government to control costs

The Good Cop Version

(Nichols/Bertko)

• Help raise the public’s comfort level with private plans

• Not based on Medicare – don’t use Medicare or other prescribed rates, providers can negotiate etc

• Modeled on state self-insured plans

• Exactly same regulations as private plans, Same reserve funds rules etc.

• No federal financing advantage for the public plan

The Common Theme

Public and private plans will compete on a level playing field

You betcha!

The Dilemma

• If you have exactly the same rules, why have a public plan?

• But if different rules, can you avoid the deck being stacked?

“Public Plan,” California Style

Health Benefits Overview

“CalPERS offers three types of health plans:• Preferred Provider Organizations (PPOs) • Health Maintenance Organizations (HMOs) • Exclusive Provider Organizations (EPOs) (limited to

members in certain California counties).”

Source: http://www.calpers.ca.gov/index.jsp?bc=/about/benefits-overview/health/benefits-overview.xml

Problems with the level playing field vision

• The giant sucking sound (See Lewin data on employer dumping)

• Can Congress be a team owner but also oversee the rules of the game with impartiality?

• The Nichols Requirements:

– Must be a wall of separation between entity governing public plan and Congress

– Congress must restrain itself from interfering with public plan management

– Must be systematic cost-shifting

– Must be no special access to the Treasury

An alternative solution“If you don't have health insurance, you'll be able to get the same kind of health insurance Members of Congress get for themselves.”

Barack Obama

• FEHBP has no public plan – has private national plans

• Federal employees seem comfortable with competing private plans

• Government (health exchange) sets rules on information, solvency etc. but has no plan

– Better for reform: state exchanges and risk adjustment with federal certification

• FEHBP negotiates with national plans

– Better for reform: negotiated benchmark plans for each state